The first two notes in our 1954 Act series, “Does the Act apply?” and “Contracting out of the Act”, looked at the protection offered by the Landlord and Tenant Act 1954 (“the Act”) and explained how this protection could be contracted out before the lease was granted. This is the first note looking at the renewal and termination procedures, focussing on how you correctly identify the parties with the rights to terminate or renew.
When the contractual term of a protected tenancy has come to an end a continuation tenancy arises. Whilst this can continue indefinitely, it is not a wholly satisfactory arrangement, so one or both parties will eventually want to take steps to either bring the lease to an end or to enter into a new lease. This is done by way of a section 25, 26 or 27 notice – these notices will be covered in more detail in later notes.
Before any steps can be taken towards terminating or renewing the lease it is essential that you establish who the landlord and tenant are for the purposes of the Act, so that you know who can serve the necessary notices, and on which parties. In a straightforward lease granted by a freeholder to a tenant who remains in occupation, this will be easy. However, it is often more complicated than this.
The “competent” landlord
The direct landlord of the tenant will not always be the “competent” landlord for the purposes of the Act. The procedure under the Act must be conducted between the competent landlord and the tenant, so he must be correctly identified before any steps can be taken.
The basic rule is that the competent landlord is either:
- the freeholder; or
- a landlord who is himself a tenant under a lease which will not expire within the next 14 months.
Where the lease has been granted directly out of the freehold, it is clear who the competent landlord is. It is less clear where a subtenant is trying to work out who his competent landlord is. The following diagram illustrates how the rules apply:
Click here to view charts.
The rules relating to how to identify the competent landlord can get even more complicated if there is a series of leases, underleases and sub-underleases. However, there can usually only be one competent landlord at any one time and it will always be the qualifying landlord who is lowest down the chain of superior tenancies.
Can the competent landlord change once the procedure has started?
The competent landlord can change throughout the procedure so thought needs to be given to this at every step. For example, a head tenant may be the competent landlord when a section 25 notice is served; however, by the time that court proceedings are started he may no longer be the competent landlord (because his lease will end in less than 14 months or because a notice has been served) meaning that the freeholder is now the competent landlord. Each successive competent landlord is able to step into the shoes of his predecessor for all purposes connected with the procedure.
How can there be more than one competent landlord?
A tenant may sometimes find himself in a situation where he has a split reversion, because his original landlord no longer holds the whole of the property contained within the lease. The severance of the reversion does not bring two tenancies into existence so there is a single tenancy with multiple competent landlords.
Another difficult situation is one where the lease contains rights over other property and that other property has subsequently been sold to a third party. As an easement is not usually capable of being “occupied”, the property over which the right is exercised does not form a part of the “holding” meaning that the tenant does not have a right to have this property included in the new tenancy. However, the easement is a part of the premises to which the Act applies for the purposes of continuation of the tenancy and the tenant has the right to have the easement included in the grant of the new lease. This will only be possible if the owner of the property over which the rights exist is party to the new lease.
The definition of landlord refers to the person (or persons) with a reversionary interest in the property, not just the holding, so it would appear that the correct conclusion is that this is a split reversion and the person over whose land the rights are exercised is one of the competent landlords.
Where there are multiple competent landlords the renewal or termination procedure is more complicated as all landlords will need to be involved.
How can a tenant check who his competent landlord is?
A tenant can obtain information regarding its landlord by serving a section 40 notice on him. This notice requires certain information to be provided (such as the term of any head lease and whether any section 25 or 26 notice has been served) which will help the tenant to identify who his competent landlord is.
The landlord has a duty to reply within one month (and a failure to do so can result in an order for compliance and/or damages); more onerous is the duty to update the information if there is any change in circumstances during a period of six months from service of the notice. This can prove very difficult for landlords with large portfolios and it is important that clear internal procedures are in place to ensure that any change is communicated within one month of its occurrence.
Note that if the landlord transfers his interest in the premises and gives the tenant written notice of this, together with the name and address of the transferee, his duties will cease.
Who is the tenant in occupation of the “holding”?
It is usually relatively easy to identify who is currently the legal tenant, and whether there is qualifying occupation, though a landlord will need to check whether there has been any assignment of the legal interest (whether permitted under the terms of the lease or not). However, it is also important to establish exactly what the tenant is in occupation of.
The “holding” and implications of sub-tenancies
A tenant is only entitled to a new lease of the “holding” and this is defined as only those parts of the property which the tenant occupies for business purposes. The tenant will not be entitled to a new tenancy of any part of the property that is not occupied at all. However, there is nothing to stop the tenant from taking occupation for business purposes on the last day of the term so as to achieve continuation.
Where the whole of the property has been sublet, such that the tenant is not in occupation of any part of it, the tenant will not be entitled to a renewal lease. However, depending on the terms of the lease and the nature of his occupation, the subtenant may have the right to a renewal lease.
Where the property is partly sublet, the tenant will only be entitled to a renewal lease in respect of the holding (the part he continues to occupy), though the landlord may elect to grant a renewal lease of the whole. In order to take a renewal lease of part only, the tenant must be able to show not only that he occupies the remaining part for business purposes but also that he would continue to do so if he were granted a new lease of only that part: for example, where the tenant has a lease of a block of flats, all of which are sublet, and the tenant occupies the common parts and office space for the purposes of running the block, he will not be entitled to a new lease of the parts that are not sublet as there is no business to run if the flats are not included in his tenancy.
It is vital that the landlord knows who is in occupation of all parts of the property and who is entitled to a renewal tenancy of what holding so that he can ensure his notice is served on the correct tenant(s) (and that he is the competent landlord in respect of that tenant).
How can a landlord check who is in occupation of the property?
A landlord can obtain information regarding his tenant and any subtenants by serving a section 40 notice on the tenant. This notice requires certain information to be provided which will help the landlord to identify whether the tenant occupies all or any part of the premises for business purposes and whether there are any subleases, plus whether these subleases have the protection of the Act and whether any notices have been served in respect of them.
Just like the landlord, the tenant has a duty to reply within one month and a duty to update the information that he provides. Similarly, if the tenant assigns the lease and gives the landlord written notice of this, together with the name and address of the assignee, his duties will cease.